Supplier Relationship Management: Victim or Savior?

In a year-end report, IACCM highlights the continuing immaturity of most Supplier Relationship Management (SRM) programs. While a minority of organizations are generating substantial benefits, for most the investment in SRM is minimal, leaving it often fragmented and under-resourced.

The IACCM report, based on a survey conducted in December 2017, reveals that top-performing programs are yielding returns equivalent to 11% or more of spend, in particular through progress in innovation and efficiency. For these leaders, negotiated price reduction takes a back seat. However, this enlightened approach is far from being the norm. In most organizations, SRM either does not exist in any formal context, or is seen as a sub-element of Procurement, often driven by the same motivations and measurements.

It is this subservience to Procurement that raises real questions. Many commentators agree that the era of squeezing suppliers for price reductions is coming to an end. If they are right (and it could be argued that in fact a new era based on automation is about to begin), then Procurement needs to shift its focus towards lifecycle costs and value. This requires an understanding of how to evaluate and sustain high performing relationships.

Those who have developed successful SRM programs recognise the need for skills and tools that are rarely found in Procurement functions. That is why, when operating as a sub-group in Procurement, SRM has generally struggled to make an impact. Frequently it becomes entangled in political battles over role and authority, resulting in limited internal impact and leading to confusion for suppliers.

Yet for Procurement to flourish – some would say to survive – it desperately needs to raise its business contribution and SRM is the most obvious source of additional value. 2018 looks like it may be a pivotal year when we will start to see more intelligent discussion about the positioning of SRM. For example:

• can SRM prove effective within a traditional Procurement function and if so, how should roles, responsibilities and authorities be divided?
• should Procurement itself be sub-divided, with traditional roles increasingly automated and outsourced and a new management group established for key suppliers and major contracts?
• as businesses become steadily more dependent on their ability to form and manage external relationships, should major elements of SRM and CRM merge, to become an integrated function that oversees and enables trading relationships in every form?

IACCM will continue to lead research and discussion on these important points, as well as offering its members the training and advisory services they need to handle the critical changes affecting every organization.

For those who prepare, 2018 promises to be an exciting year, with many opportunities for growth.